In the U.S. economy, working hours and productivity are negatively correlated, and the volatility of hours is two times higher than the volatility of productivity. In the standard one-shock real business-cycle theory (RBC) model hours are positively correlated with productivity and are two times less volatile than productivity.
This paper attempts to replicate the co-movement of hours and productivity observed in post-war U.S. data using the one-shock RBC model. The paper explores the real business-cycle (RBC) two-person household model and the home production model with the model economy having a representative household of two agents. In the model, agents divide their time between leisure, work on the market and home production. The paper finds that there is a fixed cost to working on the labour market and so agents may choose not to work. The fluctuations in the model, it is suggested, are then driven by aggregate technology shock. The author calibrates the model to U.S. data and simulates it, finding that working hours are two times more volatile than productivity, and that hours and productivity are negatively correlated, meaning the model replicates the co-movement of hours and productivity observed in the U.S. data quite well.
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